Infocredit Group and its strategic Partner, LexisNexis Risk Solutions, explain the importance as well as the benefits for complying with the Money Laundering Activities Law and define clearly the true cost of Anti-Money Laundering compliance for the financial institutions operating in European markets.

This article was issued by LexisNexis Risk Solutions, a global leader in providing essential information to help customers across every industry and government to assess, predict and manage risk, while upholding the highest standards of security and privacy.

Infocredit Group is the exclusive strategic partner of LexisNexis Risk Solutions in Cyprus, Malta, Greece, Romania, Russia and the United Arab Emirates.

EU regulations governing anti-money laundering (AML) compliance continue to evolve, most recently with the EU’s Fourth AML Directive coming into force in June 2017. The expanded focus of this new Directive increases pressure on compliance teams, with significant fines and reputational damage with violations.

This adds to the AML compliance cost burden among European financial institutions. Their most significant cost component is labour resources, which include not just salaries but also benefits, taxes and other corporate-required contributions. With increasing compliance workloads – including an expectation of increased volumes of alerts - there could be a time relatively soon where the reliance on human resources shows diminishing returns in the face of rising workloads and costs. There are also indirect costs associated with lost productivity and delayed onboarding which causes customer friction and lost new business. Whilst risk compliance technology is being used by European financial institutions, there is opportunity to better leverage it to improve processes efficiencies and offset the negative impact of these costs.

What is the true cost of AML compliance for financial institutions operating in European markets? And are there any benefits of AML compliance?

To answer these questions, LexisNexis® Risk Solutions conducted an in-depth survey of AML, compliance and risk professionals across five markets (France, Germany, Italy, Switzerland and the Netherlands) in Europe. The survey focused heavily on the banking industry, though also included insurers, asset management and money services bureau firms. The objective of the research was to identify the true cost of compliance and the underlying factors driving it.

Executive Summary

Key findings from this study include the following:

- Extrapolating survey results to all financial institutions across the five study markets, we estimate the true cost of compliance across these countries to be US$83.5 billion annually. This is a function of the number and size of financial firms and, thereby, varies by each country.

- Whilst European financial institutions must adhere to AML compliance regulations, they look beyond just the requirement and view such regulation as an opportunity to improve business results, including better data to manage customer relationships and risk analyses.

- However, since labour resources represent a significant component of compliance spend (average 74%) and activities, firms are burdened with this expense along with decreased productivity and lost prospective customers.

- Financial institutions of all sizes get hit hard by AML compliance costs because of basic overhead investments required. Whilst larger firms spend significantly more in terms of total dollar outlays, the cost to smaller firms takes a larger bite in terms of per cent of total assets.

- Since most due diligence time is spent on more complex corporate accounts, where assets and ownership beneficiaries can be more difficult to identify, sources of information used by human resources need improvement in order to keep up with increased workloads.

- This cost and productivity burden is expected to grow, with increased alert volumes and resource needs. Without rebalancing AML cost components to involve more compliance risk management technology, financial institutions can get caught up in an upward swirl of AML costs.